For
nearly two decades, tax-deferred annuities have enjoyed remarkable popularity.
Most tax-deferred annuities require a single premium payment in the beginning,
which then accumulates on a tax-deferred basis.

However,
annuities are not perfect. For instance, if you should pass away while
your annuity is accumulating, all deferred taxes on your growth suddenly
become due. Annuities with substantial growth could be reduced significantly,
and your children and grandchildren could end up with a fraction of your
annuity's value after taxes.

For
retirement savers looking to preserve a little more wealth for their family,
there may be a solution: a type of life insurance policy known as a Modified
Endowment Contract (MEC).

In
financial circles, MECs are often compared to annuities because of their
similarities. In fact, MECs are technically life insurance contracts that
have many of the benefits of accumulation found in annuities... but if
anything happens to you, your loved ones will usually receive more
than your initial premium, not less.

The
Basics of MECs

The
same insurance companies that issue annuities also underwrite Modified
Endowment Contracts. MECs are very similar to annuities in terms of tax-deferred
accumulation of your initial premium.

However,
the tax code is not very favorable, particularly if the owner passes away
during the annuity's accumulation stage. If that happens, all deferred
income taxes on growth become due.

MECs
are able to overcome this by including an insurance "rider"
in the contract, designed to pass the entire account value to your beneficiaries
income tax-free.

While
specific features will vary by company, MECs offer several distinct advantages
over deferred annuities and other wealth-accumulation vehicles:

MECs
avoid income taxes during the accumulation stage of your account;

MECs
do not force you to make distributions by a particular age, like
some IRAs and 401(k)s;

MECs
allow you to make withdrawals or loans in cases of emergency;

MECs
give you the flexibility to choose between fixed and variable account
options;

MECs
provide a lump sum payment to heirs that is tax-free;

Unlike
annuities, MECs can be owned by certain types of trusts
without losing their tax-advantaged status

MECs
can provide a retirement income for you, while preserving your legacy
for your loved ones.